Financial Power of Attorney
A financial power of attorney allows a person to designate someone to assist with his or her finances. The individual granted the power of attorney is known as the agent, and the principal is the person designating the power.
The principal can decide how much responsibility to grant to the agent. The principal can confer an extensive range of authority or can limit the agent’s power to a sole transaction. The power of attorney should be designed to fit the principal’s particular needs.
The principal must chose someone he or she trusts as an agent because the agent has power to make important decisions on the principal’s behalf. The principal can name multiple agents to act either jointly or independently. The power of attorney may authorize the principal’s agent or agents to complete tasks such as the following:
- Fund support and care;
- Perform financial transactions;
- Manage property;
- Handle legal claims;
- Manage insurance and retirement benefits;
- File tax returns;
- Execute contracts;
- Plan Medicaid;
- Collect social security benefits; and
- Perform trust duties.
If the agent is given authority to make decisions about real estate, the power of attorney must typically be recorded, along with the deed, in the county clerk’s office.
The agent is required to follow the principal’s written and oral instructions and act in the principal’s best interests. If the agent fails to do so, he or she may be liable for damages. It is wise for the principal to name an alternate agent in the event that the agent resigns, dies, or becomes incapacitated.
There is no guarantee that a power of attorney will be recognized by third parties, such as the Social Security Administration, the Veterans Administration, or the Internal Revenue Service. The principal must ensure that the power of attorney is presented to the agency in a way that contains the particular wording mandated by each agency’s specific form.
The principal decides when the agent’s authority commences and ceases. Depending on the principal’s situation, he or she may use various forms of power of attorney. A conventional power of attorney begins when the principal signs it and ends when he or she becomes mentally incapacitated. A springing power of attorney arises when a specified event occurs, such as when the principal becomes physically disabled. The person drafting this type of power of attorney must be careful to ensure the court faces no difficulty in determining whether the event occurred. A durable power of attorney begins when it is signed and remains in effect through the principal’s lifetime, even if he or she becomes mentally incapacitated, or it becomes effective when the principal becomes mentally incapacitated.
Durable Power of Attorney
The durable power of attorney is a legal document granting someone the power to act in the principal’s place should the principal become mentally incapacitated. Mental incapacity can arise from a number of causes, such as illness, injury, accident, or old age. Should one of these occur, and the incapacitated person has not executed a durable power of attorney, the court will likely decide who will act on his or her behalf.
A durable power of attorney is distinguishable from a regular power of attorney because a regular power of attorney becomes invalid once the principal becomes incompetent. Thus, the advantage of a durable power of attorney is that the principal – not a judge – selects the agent. It can give the principal and his or her loved ones peace of mind, knowing that he or she has named someone to handle significant matters. It can also avoid a time-consuming and expensive court proceeding.
In order for a durable power of attorney to be valid, it must be signed before you become incapacitated. It should contain language such as: “This power of attorney shall not be disturbed by subsequent incapacity…” or “This power of attorney shall become operational upon the incapacity of the principal.” As long as you have capacity, your durable power of attorney can be revoked, provided the revocation is in writing and is delivered to the agent. The durable power of attorney automatically terminates when you die.
A durable power of attorney is an important step in planning your future affairs. Because of the potential problems and intricacies involved, it is advisable to consult with an experienced attorney to prepare a durable power of attorney best suited to your particular needs.